March 10, 2007

Condo battle ends after 14 years

Can a buyer back out of the purchase of a condominium unit and get a refund
of the deposit if there are municipal work orders against the building?

Last year, after an incredible 14 years of litigation, the Ontario Court of
Appeal awarded two purchasers the return of their $5,000 deposit, adding the
unusual footnote: "After 14 years, we trust that this case is finally at an
end."

It all began in May 1992, when Angelo and Luciana Boschetti entered into an
agreement of purchase and sale for Rosa Sanzo's condominium unit in North York.

The agreement contained this clause, which is in common use in Toronto but is
jarringly ungrammatical: "Vendor warrants that there are no outstanding work
orders registered against the property, and if so, will be complied with at his
own expense, on or before closing."

One of the printed standard clauses in the offer stated that if the purchaser
submitted an objection to title or to an outstanding work order that the vendor
could or would not remove, the agreement would come to an end and the deposit
money would be returned.

A work order is an enforceable demand by a municipality or other authority
requiring a property owner to comply with bylaws governing building standards,
zoning, health, fire code and similar regulations.

Within the appropriate time limit, the purchaser's lawyer, Patrick Di Monte,
requested proof that there were no work orders outstanding, and the seller's
lawyer replied, "Please satisfy yourself."

In fact, however, there were numerous work orders against the whole building.
The condominium's financial statements for the year ending Sept. 30, 1991,
disclosed that there were a number of work orders requiring repairs to the
garage, balconies and stairwells.

On May 12, 1992, five weeks before the scheduled closing, a municipal
inspection of the building listed 32 defects.

With its reserve fund substantially in the red, the condominium corporation
did not have enough money to pay for capital projects.

The board decided to move slowly with the necessary repairs, as funds became
available, but did implement a special assessment to bring in some of the
required money.

The seller rejected the buyers' request to return the deposit and unwind the
deal. In response, the buyers sued for return of the deposit and the seller sued
for more than $20,000 in losses resulting from the aborted sale.

In December 2003, more than 11 years after the scheduled closing, the case
finally came to trial before Justice Blenus Wright in Toronto.

In his ruling, he stated, "The plaintiffs contracted for a unit in a building
in which the vendor represented that there were no outstanding work orders. Some
work orders may have been excused but there were outstanding work orders from an
inspection three years earlier in 1989. The plaintiffs would be buying a unit in
a building in which the common elements were in a continuing state of
disrepair."

"In my view," wrote the judge, "on the closing date the purchasers did not
get what they bargained for and if they closed the transaction they would have
been faced with an uncertain financial picture. As it was, the purchasers were
denied mortgage financing from the TD Bank."

As Di Monte stated in his letter of June 23, 1992, to (the seller's lawyer)
Capone, "In view of the substantial work orders, the financial institution, the
Toronto-Dominion, will not advance a red nickel."

Justice Wright said that the plaintiffs were within their rights to refuse to
close. The agreement was void and the Boschettis were to get back their deposit
and court costs.

The vendor appealed and the case was heard by three judges of the Court of
Appeal last summer.

In dismissing the appeal, the court said that the decision of the trial judge
was clearly supported by the evidence, and the purchasers were entitled to their
$5,000 back, plus $4,000 in costs for the appeal.

No explanation is given in either court decision for the lengthy delay. After
both sides paid legal fees for a trial and appeal over the course of 14 years,
nobody really came out a winner financially.

Some worthwhile lessons emerge from the litigation:

If you are selling a house or condominium unit subject to work orders, never
state that there are none.

Sellers should carefully direct their attention to all of the clauses in an
offer. If the agent presents an offer, he or she is obliged to explain it.
Better yet, review the offer with a lawyer before signing it.

If you're going to certify that there are no work orders, make sure the
grammar in the offer is reasonably correct.

When the costs of litigation exceed the amount of money at stake, it's time
for a reality check.

Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.Visit the Toronto Star column archives at http://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.